PRIVATE SECTOR DIALOGUE IN THE CONTEXT OF THE GREEN ECONOMY

RIO +20 SIDE EVENT BRIEF

LEAD ORGANIZER: AFDB

SPONSORING PARTNER: COAST

Date: 21 June 2012 Time: 19:00 - 20:30 Venue: RIO CENTRO P3-E

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1. Context . The private and public sectors are increasingly aware of their role in bringing about long-term growth that is green and sustainable. However, goodwill is not enough to create tangible solutions. On the one hand, governments are preoccupied with increasing access to basic services for the public (i.e. power, water); while on the other, the private sector aims at maximizing the return of their investments. . Economic history demonstrates that these objectives are often at odds with the environment. But we can no longer afford this dichotomy. Through the private sector, and with the support of the public sector, we must transition to a more sustainable development path. Generally, this transition must integrate two core aspects: i) the transition aspect, which implies sequencing and intermediate steps; and ii) the cross-cutting aspect, which implies a holistic approach and deep changes in our productive systems. . The Amazon in Brazil, and the in , constitute the first and second most important tropical in the . As they are public goods, their preservation ought to constitute a global priority. Cases like this urge all of us -public and private sector, NGOs, and civil society- to think beyond national, regional and continental borders, to integrate our common limitations and together find sequenced and holistic solutions for the global village. Only in this way can we find our path and define more clearly the way forward.

2. AfDB’s Participation in the event . The event will serve to spur the exchange of ideas on green growth and private sector development. The event confirms the Bank’s commitment towards Africa’s private sector-led green growth. The dialogue will be strengthened by concrete green investments, including Cabeolica Wind Farm in , the Lake Turkana Wind Power Project in , the Toll Bridge in Côte d’Ivoire, the Aldus Aircraft Leasing Project, and the Ferroalloys and Power Plant. . The Private Sector Dialogue will serve to attract investors into Africa and help foster a proper enabling environment. By highlighting specific opportunities in Africa, and allowing project sponsors to share their own investment experience in the , the Bank aims at sensitizing the audience on Africa’s investment landscape and green growth agenda. Furthermore, by including high ranking members of key African countries, the Bank will advance the public-private dialogue, so as to accelerate improvements in Africa’s business environment. . The AfDB will discuss the intersection between green growth and private sector development, with a focus on sustainable development in Africa. Two pivotal Bank transactions standing to make a solid contribution to Africa’s green growth agenda are given as an example at the end of this document: Cabeolica Wind Farm in Cape Verde and Côte d’Ivoire’s Toll Bridge.  While the first one exemplifies the importance of renewables in meeting Africa’s acute energy shortage, the second one shows how targeted investments in transportation can reduce carbon emissions.

3. Key Areas for Discussion . What is the role of the private sector in pushing forward the green economy?  With increasingly constrained public funding, the private sector plays an important role in the green economy through its ability to mobilize resources. Investment is the driving force of innovation. Innovation is the key to growth that is green and sustainable. To push forward the green agenda, the private sector needs to do both, effectively mobilize resources to green solutions and continue on its quest for innovation that makes better use of our precious natural resources.

. How can the private sector improve working relations with other key stakeholders (NGOs, public sector) to advance the green growth agenda? 2

 In today’s increasingly interconnected world, it is no longer possible for stakeholders to act in isolation. Private sector players that do not engage in thorough stakeholder analyses prior to investing will have a difficult time to do business. Thus, it is the role of the private sector to understand the local context and engage various different stakeholders in dialogue. By developing one-stop shops and PPP Units with a green orientation, the public sector can facilitate this dialogue but it is ultimately the private sector that must do the legwork to bring about efficiency into the process.

. What are the major impediments in Africa to securing long-term private investment?  The availability of long-term funding features very high on the list. However, it is far too easy to focus on this. Instead, it is important to explore the reasons behind this situation, essentially a business environment that is not yet conducive to long-term private investment. Everyone must play a role in addressing this issue. While the public sector ought to invest in improving their business framework, the private sector must engage the former in dialogue to bring about understanding. To bring about local support and ensure sustainability, civil society and NGOs ought to be present in the process. The AfDB can and does play a role in making all the different parties aware of their roles and responsibilities. However, our effectiveness is constrained to those instances where local buy-in is strong.

. How do we stimulate private sector investments in low- and middle-income countries?  Quite unfortunately, we are in the fourth year of disarray in the financial markets. As the situation unfolds, investors have been flirting with two opposing positions: finding safe havens for capital and questing for high return opportunities. Against this background, economies that can bridge these two positions are economies that stand to benefit from the going disarray. Low- and middle-income countries are not the exception. The public sector should be aware of this situation and thus strengthen the rule of law and overall business environment. The private sector must be willing to go beyond their comfort zone and become educated about latent opportunities in low- and middle- income countries. But MDBs and other financial institutions such as the AfDB can also play a role. Through innovative financial products such as Partial Risk Guarantees (PRIs) and Partial Credit Guarantees (PCGs), our institutions can and do stimulate investment in low- and middle-income countries. And, when it comes to the green economy, the availability of soft and concessional funding in particular has the potential to catalyze more investment.

. How can the public sector stimulate private sector investment in the green economy?  The public sector must enable and stimulate the private sector to invest in green projects. Strengthening the rule of law and improving the overall business environment are of paramount importance in this quest. But fiscal incentives, investment participation, and attractive contractual terms can help in bringing about critical mass to the concept of green growth. The silver lining for these is of course a committed public sector that is equipped and willing to take on a leadership role in the green economy.

4. Key thoughts . The dialogue and support on the part of development partners, the international community, NGOs, civil society, the public sector, and private sector agents are critical in catalyzing green investments in Africa. . Financial innovation, such as risk guarantees as well as soft and concessional funding can bring about critical mass to Africa’s green growth agenda. . Investing in Africa requires extensive preparation and substantive due diligence – green investments are not an exception. Through its top-notch project finance experience, the AfDB can help develop the capacity of the public sector to promote private sector investment and green growth. 3

. Green growth is increasingly becoming a reality in Africa. The AfDB has learnt, reacted, and improved its targeted financial solutions to promote green growth on the continent. . Our decision-making process and economic analysis ought to be adapted: what is the economic cost of one ton of CO2 emitted? What is the economic cost of depriving future generations from clean water resources or inexpensive electricity? These are core questions that we must face today and which sum up to an overarching query: What financial resources are we willing to invest today to preserve our natural endowment into the future?

Illustrative Private Sector Project Examples

Two examples of pivotal AfDB transactions standing to make a solid contribution to Africa’s green growth agenda:

1. Cabeolica Wind Power Project – Cape Verde . In 2010, the AfDB approved an investment of EUR 15 million to support this Project (total cost EUR 63 million). . The Project consists in four onshore wind farms on four islands of the Cape Verde archipelago. . The wind farms will provide a total of 25.5 MW of electricity to the grid on each island. . The added generation capacity represents an increase of over 100% to Cape Verde’s installed capacity which, in 2009, was only 86MW and derived almost entirely from diesel and fuel oils. . The Bank, along with EIB, ensured that the Project was adequately and fully funded. . Exceeding expectations, the IFIs appraised the project in February (2010), granted Board approval in mid-May and reached financial closure by the end of the same month (May 2010).

Impact:

o Cabeólica has helped to decrease green-house emissions by reducing CO2 emissions by at least 85,000 metric tons per year. o In addition, economic analyses suggests that the project produced an economic internal rate of return in excess of 15%. o Moreover, the project has allowed Cape Verde to rely on domestic resources rather than imported oil thereby protecting the country from the volatility of world oil prices and the inefficiency of diesel and fuel operated plants.

2. Henry Konan Bedie Toll Bridge – Côte d’Ivoire . The Henry Konan Bedie Toll bridge consist in the design, construction, operation and maintenance of a 1.9 km long toll bridge over the Ebrie lagoon in , along with 4.7 km of access roads. The project is structured as a PPP implemented under a BOT concession agreement . The Project is the first PPP and first major private sector investment in Cote d’Ivoire since the end of the civil disturbances in early 2011.

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. The Project is expected to make a significant contribution to the country’s economic recovery, through the improvement of basic infrastructure involving reputable financiers and investors, thus sending a positive signal to the market . The Bank took a leading role in the transaction by working as the mandated lead arranger. The Bank mobilized financing from a select group of DFI’s, a commercial bank, and the government . AfDB senior loan $76 million (total cost $343 million).

Impact: o The project will benefit Cote D’Ivoire by improving overall traffic conditions in Abidjan city center and the surrounding areas by: i) relieving traffic congestion since the two existing bridges over the lagoon have been saturated, and ii) improving transportation network and urban mobility by integrating some poorly served areas to the existing road network and adding alternative routes to port and airport areas o By reducing average journey times, the Project will significantly reduce the average carbon dioxide emissions per vehicle.

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